Aid To The Drought-hit Need Not Mean Higher MSPs

The Union government has acted wisely this time in not tampering with the recommendations of the Commission for Agricultural Costs & Prices (CACP) on minimum support prices (MSPs) for kharif crops.

In fact, this is the first time, that in spite of being confronted with a compelling situation like drought in the current year, the government chose not to tamper with the MSPs fixed by the CACP. It did not agree for a bonus on MSP also, as it would disturb the market prices.

The sit-in dharna by the Punjab chief minister, Capt Amarinder Singh and his Cabinet colleagues before the prime minister Atal Bihari Vajpayees residence on last Thursday and his subsequent meeting with the prime minister on later on the same day did not yield much results.

Capt Singh had demanded a hike in MSP for common variety paddy from the existing Rs 530 per quintal to Rs 660 per quintal. He also demanded that the MSP for grade A variety paddy be hiked from Rs 560 per quintal to Rs 726 per quintal. He had also demanded a bonus of Rs 100 per quintal over the MSP be paid to the farmers on procurement of paddy for the central pool.

In his meeting with the prime minister, the Punjab chief minister tried to impress upon him that due to the severity of drought the farmers in the state are suffering. The delay in the announcement of the MSPs for kharif crops has compounded the distressed situation. The farmers, particularly in border areas, were selling paddy at the rate of Rs 400 to 450 per quintal which is much lower than the MSP fixed last year. Capt Singh also pleaded that it would not be possible to reduce the local mandi cess on paddy and rice from the existing 11.5 per cent to 4 per cent as desired by the empowered committee on state finances. He stated much of the cess collected in the process goes to renovating the market infrastructure and as such if the local cess is to be reduced to 4 per cent, the Centre should extend a compensation package of Rs 1,000 crore to Punjab.

But unfortunately for Capt Singh, the Centre wisely chose not to fall into his trap. In last Thursday evening the Cabinet Committee on Economic Affairs (CCEA) okayed in toto recommendations of the CACP on MSPs. There was no increase in MSPs for paddy, coarse cereals, tur (arhar), soyabean and cotton. Moong and urad MSPs were raised to Rs 1,330 per quintal, MSP for groundnut-in-shell was increased to Rs 1,355 per quintal.

MSP for sunflower seed was raised by Rs 10 per quintal over the previous years prices. Sesamum MSP was to Rs 1,450 per quintal while the nigerseed MSP was raised to Rs 1,120 per quintal. This is wise decision by the Centre. The hike in paddy MSPs could have been irrational in context of current market prices. The irrational hike in paddy MSPs could have benefitted only farmers in those states where procurement for the central pool is usually done and not other farmers in other drought-hit states.

Doors are, however, open to help the drought-hit farmers. The CACP in its special study on the drought situation has suggested waiving of interests on loans to farmers, rollback of fertiliser prices to pre-Budget levels and a drought bonus of Rs 20 per quintal over the MSP for paddy.

Again the CACPs suggestion for drought bonus does not sound logical as procurement is done in selected states any bonus over MSPs would amount to affecting open market prices. Also the rollback of fertiliser prices does not sound logical given the efforts to bring reforms in the sector. The waiving of interests on loans is logical as this can cover a larger section of farmers. Waiving of interests on loans can easily be met by the Stabilisation Fund created by the government for cooperative banks. Instead of rolling back fertiliser prices the government should think of a package of input subsidy to be passed on to farmers through the input supplying agencies.

Lets see how much wise the government can remain in future notwithstanding political pressures and paving the way for benefitting majority of farmers.